iTrade Pro Forma Sales Projections
Annual Unit Sales
120,000,000
100,000,000
80,000,000
Ipods Sold
Unit Sales
60,000,000
Unit Sales with iTrade
40,000,000
20,000,000
0
2002 2003 2004 2005 2006 2007 2008 2009
Fiscal Year
Fiscal Year Unit Sales Unit Sales with iTrade
2002 381,000 381,000
2003 939,000 939,000
2004 4,416,000 4,416,000
2005 22,497,000 22,497,000
2006 41,043,000* 41,043,000*
2007 65,668,800* 72,571,904*
2008 78,802,560* 89,847,527*
2009 86,682,816* 99,936,776*
*Projected
Percent Growth
450%
400%
350%
300%
Percent Grwoth
250%
Percent Growth
Percent Growth with iTrade
200%
150%
100%
50%
0%
2003 2004 2005 2006 2007 2008 2009
Fiscal Year
Fiscal Year Percent Growth Percent Growth with iTrade
2002
2003 146% 146%
2004 370% 370%
2005 409% 409%
2006 82%* 82%*
2007 60%* 77%*
2008 20%* 24%*
2009 10%* 11%*
*Projected
The slowdown in growth of iPod units sold is due to the fact that as the
product line expands, many people who already own the device will be unwilling
or financially unable to purchase a new one. Because the flagship iPod is already
in its fifth generation, most people who see the device as a necessity already own
one, leaving a smaller opportunity for future growth. This phenomenon will
continue to play a large part in the future sales outlook of the iPod.
Additional Profit Generated by iTrade
By essentially lowering the profit margins on new iPods that are obtained
using the iTrade system, Apple can generate a large amount of incremental profit
that they would not have achieved otherwise.
$7,000,000,000
$6,000,000,000
$5,000,000,000
$4,000,000,000
Total Additional Profit Attributable to iTrade
Profit Without iTrade
$3,000,000,000
$2,000,000,000
$1,000,000,000
$0
2007 2008 2009
Fiscal Year
Note: Profit figures are based on the estimate that high capacity iPods constitute
46.72% of total iPod sales figures during any given fiscal year.
Total Additional Profit Attributable to iTrade
$894,642,312
$900,000,000
$745,535,260
$800,000,000
$700,000,000
$600,000,000
$465,959,537
$500,000,000
$400,000,000
$300,000,000
$200,000,000
$100,000,000
$0
2007 2008 2009
Fiscal Year
Additional Profit on Low Margin
Fiscal Year Additional Units sold Units Additional Profit on High Margin Units
2007 6,903,104 $120,804,324 $345,155,213
2008 11,044,967 $193,286,919 $552,248,340
2009 13,253,960 $231,944,303 $662,698,009
Fiscal Year Total Additional Profit Attributable to iTrade
2007 $465,959,537
2008 $745,535,260
2009 $894,642,312
Due to the scarcity of data regarding unit sales component percentages per
model, accurate predictions of revenue and cost of goods sold predictions cannot
be made to the overall breadth of the iPod line. However, estimates can be made
pertaining to unit sales growth and the additional profit attributable to the iTrade
system, using the 46.72% estimate of high capacity iPod unit sales.
Logistic Growth Model of the iPod Unit Sales Curve
The logistic growth model is essentially an S-curve outlining the growth of
a certain population over a period of time. By definition, growth in the earlier
stages begins as exponential, and then as competition arises, the growth rate
slows until halting at maturity.
Due to the incredible proliferation of the iPod in culture and society, sales
of the units have experienced tremendous growth over the past few years.
However, recent sales figures foreshadow a diminishing growth rate in
subsequent years. The second quarter of fiscal 2006 was the first in which the
company experienced negative sales growth, indicating an overt trend that
threatens to extenuate the profits of Apple’s most successful product division.
Data and sales modeling suggests that the apex of such sales growth has been
reached, and that the company will continue to see a slowdown in sales until they
finally halt at maturity. This is characteristic of the logistic growth model. The
slowdown in sales can be attributed to a variety of factors:
 Most consumers who feel that the iPod is a necessary product in their lives
have already made the purchase and have no need for another model.
 Most consumers who purchase their iPods keep them for at least two
generations, so those that already own them will be less likely to buy a new
model.
 The flagship iPod is already in its fifth generation, and as an increasing
number of competitors and technological advances come to market, the
iPod starts to sink into a sea of relative obscurity.
 Because it is a cultural phenomenon, the fad appeal of the iPod is
inevitably destined to diminish. Nothing short of a massive, aggressive
marketing campaign or boldly innovative new features at a lower price can
perpetuate the impressive historical growth rates of iPod sales.
 The population in the U.S. grows at a lethargic pace of 1-2 percent per
year, hardly enough to sustain the iPod unit sales growth rates. Sooner
rather than later, the iPod market will begin to atrophy and there will no
longer be any new customers to cater to.
 Because the most recently released fifth generation iPod has a video
screen, many consumers feel that the limit of desirability of the units has
almost been reached. Apple can only put so many new features on a
product in order to increase sales. Also, future innovative features such as
iCal collaboration, Bluetooth compatibility, WiFi, and others appeal to a
small niche market of wealthy, innovative users who actually possess all of
the technological devices to participate in their “digital lifestyle.”
While the iPod sales machine slowly loses momentum, it requires a selling
strategy that will sustain adequate profit levels until the company develops a new
product to continue the evolution of the portable digital media market. iTrade
breathes new life into the product line while simultaneously introducing two
distinct levels of consumer into the market. The program provides for an
additional $2.1 billion of net profit over three years, which will be necessary for
the growing needs of the company.
Apple has always been seen as a highly innovative company, and it is one of a
handful of its size that can continually bring entirely new products to the
marketplace. The success of the iPod in the eyes of the public will weigh heavily
on their future decisions to buy new products from Apple. Should the iPod take a
turn for the worst and buckle to the pressure of the market share, the highly-
dominant Windows user base will see yet another failure by a company that fails
to conform to standards. The possibility of the iPod market share shrinking from
the whopping 75% it is today to around 50% could prove disastrous for the
company’s profit margin as well as customer base. Apple cannot afford to remain
complacent in this area, and simply adding new features with each new
generation release will not be enough to secure its dominance in the market.
Already, companies such as Sony and Microsoft have explicitly declared war
on the iPod, and Apple should not treat those threats with indifferent ears. IBM’s
introduction into the PC market nearly wiped Apple out in its early years, and
Apple looked down on them with condescension and arrogance. While Apple has
a market capitalization of $57.72 billion, Sony and Microsoft carry caps of
$47.36B and $236.16B, respectively. Both companies are highly competitive
internationally, and pose a very serious threat to the iPod dynasty. Although
Apple has a very significant head start in the music market, these other
companies have the management talent and the financial resources to make a
successful run at tearing down Apple’s dominant market share. As long as Apple
continues to open itself up to new ideas and innovation, they will remain at the
top of the portable media market for years to come.